Budgets - good or bad

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This blog is about budgets - not the George Osborne efforts - but company ones.

From my degree / CIMA etc, I remember studying all about how budgets were to bring goal congruence between all the different stakeholders - aligning the behaviour of the managers and the board etc.

Like all theories - all well and good.

I am currently working in departmental budget reporting, which is presenting some challenges:

1) The annual budget for 2015 is created at a company, rather than department level.

2) This same budget is created on a spreadsheet workbook with similar, but not identical, headings to the accounting software. There are fewer categories in the master budget than the nominal ledger.

3) The nominal ledger is grouped in to departments - but many of these groupings are a bit duff. One of the unfortunate features of my software (Sage 200) is that I cannot change these departments once created.

Some of this I have solved by the following:

1) Create a lookup table in Excel to pull out the Sage data.

2) Append a 'new' department name to the side of each record.

3) Report on this new data by means of a pivot table.

So I think that is the transactional work sorted.

The big issue I have with budgets is actually how little of our short run cost is actually variable anyway. Direct materials vary, of course, with sales - as do things like carriage costs.

Pretty much every other line in the ledger is broadly comparative month to month.

So - this is given to the department manager - who then in effect says 'meh' and you wonder why you bother.

Feel free to share experiences of where budgets have actually worked as they are apparently meant to - and brought about changes. Or, alternatively, feel free to take a completely different view - possibly looking towards some kind of rolling forecasts etc.

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By redboam
14th Mar 2016 13:01

Forecasts & Budgets

We use figurewizard.com for budgets and forecasts. They have a screen called whatif calculator that is ideal for testing the outcome of changes to budgets on just about everything imaginable with a single click per item.

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John Stokdyk, AccountingWEB head of insight
By John Stokdyk
14th Mar 2016 13:16

This topic has always fascinated me...

Like any middle-manager, I've been on the receiving end of some of those those documents in recent life. Our group uses Adaptive Insights, which looks great on screen when I'm allowed to see it, but is generally controlled by the folks behind the green curtain in the finance department.

I would hope our budgeting & reporting set-up is more straightforward than yours Tom, but as a budget consumer and accountancy journalist I'm really interested in the psychological and organisational element of your challenge. Within my editorial department, we've got a mixture of "good" and "bad" costs that are variable based on the amounts we negotiate with contributors and how often we commission them.

Our income and profit ("contribution" in group terms) depend on sales that can be very volatile and seasonal. While I chug away at my annual spending plan, I am conscious that some months I probably get a bit too generous when the income may not justify it or underspend when it might help our capacity if we did increase our output.

That may well drive our finance director mad, because he's not really able to forecast very accurately what kinds of contributions are coming in until all the expenses have been totted up.

The bit that isn't happening at my (admittedly lowly) level is where we look at past patterns and see if we can adapt to them to our current behaviours. THAT's what I see as a big challenge for controllers and FDs. We all tend to spend our time during the budgeting process bigging up/squeezing back spending plans, when if they offered us overviews and interpretations of what was happening with our monthly figures, we could probably explore reasons with them that could help drive the business more profitably over a longer time span.

Do any readers of this blog ever achieve that ideal? And if so, how do you do it??

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By tom123
14th Mar 2016 18:45

Adaptive / Figurewizard.

The larger international co I used to work for used Adaptive - and it was certainly helpful in getting the department heads to have input in to the budget.

I will look at figurewizard as well - as an idea for the future.

In my firm, there are 8 departments for around 30 staff - of which three actually have revenue lines in them,

CIMA used to promote something called (I think) the Beyond Budgetting round table - which aimed to break away from the budget straight jacket.

It's interesting to see the direction everything moves in.

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